Under The Hood: Dialing For Defense Overseas

These days, evidence is pretty convincing that the high beta trade is taking a siesta and everyone is wanting to play some defense. When investors develop a defensive posture, three sectors come into the spotlight for those opting to remain long equities: Consumer staples, utilities and telecom names. This week's edition of “Under The Hood” is going to focus on the third group and take a look at one option for investors that may looking to dial up the defense in their portfolios without hanging up on international exposure. If that scenario sounds familiar, then the iShares MSCI ACWI ex US Telecommunication Services Sector Index Fund AXTE might just be the ETF for you. While plenty of analysts and experts have been extolling the virtues of telecom ETFs lately, and with good reason, AXTE has received nary a mention. That's not a shock. Having made its debut in mid-July 2010, AXTE isn't even a year old and this fund isn't going to win the heavy volume contest at the county fair. Average daily volume is just 1,100 shares and as of this writing, not a single share has changed hands in the ETF today. Not surprisingly and probably as a result of that slack volume, AXTE is not shortable nor optionable. That might also explain why AXTE has attracted just $3 million in assets under management. Still, the ETF does offer most of the requisite protection and refuge investors seek with the telecom sector. Vodafone VOD and Telefonica TEF account for over 25% of the ETF's weight and are the dominant positions here. Along with Deutsche Telekom and France Telecom FTE, we've got ourselves a pretty conservative core here, but AXTE doesn't put you on the emerging markets sidelines either as America Movil AMX and China Mobile CHL are also top-10 holdings. All told, 68 stocks reside within AXTE and while the ETF is biased to developed markets, there is enough of an emerging markets kicker to appeal to the conservative risk takers out there. We're not going to quibble with the almost 6% AXTE has returned since inception, but the volume is a sticking point here. Anyone can tell an investor to use limit orders. Sometimes that's good advice and other times is just an attempt by someone to sound smarter than they actually are. When it comes to AXTE, USE LIMIT ORDERS. The slack volume contributes to a wide bid/ask (82 cents as of this writing) and while this is a decent ETF, it's not one you need to overpay for.